UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________to _________
Commission file number 0-14569
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Maryland 04-2848939
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No___
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes ___ No X_
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
September 30, December 31,
2003 2002
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 3,337 $ 5,559
Receivables and deposits 1,383 1,854
Restricted escrows 7,055 7,026
Other assets 3,748 3,424
Investment property:
Land 5,833 5,833
Buildings and related personal property 122,582 120,469
128,415 126,302
Less accumulated depreciation (78,241) (72,740)
50,174 53,562
$ 65,697 $ 71,425
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 1,474 $ 1,044
Tenant security deposit liabilities 844 774
Other liabilities 601 937
Advances from affiliate -- 156
Mortgage note payable 111,070 113,100
113,989 116,011
Minority interest (Note E)
Partners' Deficit
General partners (2,842) (2,797)
Investor limited partners (649 units issued and
outstanding) (45,450) (41,789)
(48,292) (44,586)
$ 65,697 $ 71,425
Note: The balance sheet at December 31, 2002 has been derived from the audited
financial statements at that date but does not include all the information
and footnotes required by generally accepted accounting principles in the
United States for complete financial statements.
See Accompanying Notes to Consolidated Financial Statements
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
Revenues:
Rental income $ 7,693 $ 7,676 $22,733 $22,690
Other income 406 410 1,094 1,025
Casualty gain (Note D) -- -- 83 466
Total revenues 8,099 8,086 23,910 24,181
Expenses:
Operating 3,677 2,868 10,410 9,508
General and administrative 148 191 467 553
Depreciation 1,823 1,807 5,548 5,138
Interest 635 1,205 2,068 3,691
Property taxes 440 474 1,388 1,404
Total expenses 6,723 6,545 19,881 20,294
Income before minority interest 1,376 1,541 4,029 3,887
Distributions to minority interest
partner in excess of investment
(Note E) -- -- (985) --
Minority interest in net income
of operating partnerships (Note E) -- (294) -- (783)
Net income $ 1,376 $ 1,247 $ 3,044 $ 3,104
Net income allocated to general
partners (5%) $ 69 $ 62 $ 152 $ 155
Net income allocated to limited
partners (95%) 1,307 1,185 2,892 2,949
$ 1,376 $ 1,247 $ 3,044 $ 3,104
Net income per limited partnership
unit $ 2,014 $ 1,826 $ 4,456 $ 4,544
Distributions per limited partnership
unit $ -- $ 3,109 $10,097 $ 6,208
See Accompanying Notes to Consolidated Financial Statements
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited Investor
Partnership General Limited
Units Partners Partners Total
Original capital contributions 649 $ -- $ 40,563 $ 40,563
Partners' deficit at
December 31, 2002 649 $(2,797) $(41,789) $(44,586)
Distributions to partners -- (197) (6,553) (6,750)
Net income for the nine months
ended September 30, 2003 -- 152 2,892 3,044
Partners' deficit at
September 30, 2003 649 $(2,842) $(45,450) $(48,292)
See Accompanying Notes to Consolidated Financial Statements
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2003 2002
Cash flows from operating activities:
Net income $ 3,044 $ 3,104
Adjustments to reconcile net income to net cash provided
by operating activities:
Distributions to minority interest partner in excess of
investment 985 --
Minority interest in net income of operating
partnerships -- 783
Depreciation 5,548 5,138
Casualty gain (83) (466)
Amortization of loan costs 329 102
Bad debt expense, net 205 146
Change in accounts:
Receivables and deposits 266 619
Other assets (600) (1,371)
Accounts payable 554 (895)
Tenant security deposit liabilities 70 35
Other liabilities (336) (124)
Due to affiliates -- (99)
Net cash provided by operating activities 9,982 6,972
Cash flows from investing activities:
Insurance proceeds received 104 445
Property improvements and replacements (2,305) (3,335)
Net deposits to restricted escrows (29) (126)
Refund of construction service fees from affiliate -- 2,245
Net cash used in investing activities (2,230) (771)
Cash flows from financing activities:
Payments on mortgage note payable (2,030) (1,507)
Payments on advances from affiliate (156) (1,853)
Distributions to partners (6,750) (4,241)
Distributions to minority interest partner (985) (685)
Loan costs paid (53) --
Net cash used in financing activities (9,974) (8,286)
Net decrease in cash and cash equivalents (2,222) (2,085)
Cash and cash equivalents at beginning of period 5,559 2,277
Cash and cash equivalents at end of period $ 3,337 $ 192
Supplemental disclosure of cash flow information:
Cash paid for interest, including approximately zero and
$30, respectively, paid to an affiliate $ 1,925 $ 3,610
Supplemental disclosure of non-cash information:
Property improvements and replacements included in
accounts payable $ 370 $ 253
At December 31, 2002 and 2001 approximately $494,000 and $673,000, respectively,
of property improvements and replacements were included in accounts payable
which are included in property improvements and replacements during the nine
months ended September 30, 2003 and 2002, respectively.
See Accompanying Notes to Consolidated Financial Statements
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Springhill Lake
Investors Limited Partnership (the "Partnership" or "Registrant") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of Three Winthrop Properties, Inc. (the
"Managing General Partner" or "Three Winthrop"), all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine months ended September
30, 2003 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2003. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Partnership's Annual Report on Form 10-K for the year ended December 31, 2002.
Apartment Investment and Management Company ("AIMCO"), a publicly traded real
estate investment trust, effectively controls the Managing General Partner in
its capacity as the general partner of the Registrant.
The accompanying consolidated financial statements include the accounts of the
Partnership and the operating partnerships. Theodore N. Lerner's ownership in
the operating partnerships has been reflected as a minority interest in the
accompanying consolidated financial statements. All significant interpartnership
accounts and transactions have been eliminated in consolidation.
Recent Accounting Pronouncements
In May 2003, the FASB issued SFAS 150, which establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. The requirements of SFAS 150
apply to the classification and measurement of freestanding financial
instruments. SFAS 150 is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. The Partnership has adopted
SFAS 150 as of July 1, 2003. Additionally, in September 2003, the FASB staff
indicated that SFAS 150 also applies to the non-controlling interests in
consolidated finite life partnerships. However, on October 29, 2003, the FASB
indefinitely deferred the provisions of SFAS 150 for finite life partnerships.
The adoption of SFAS 150 did not have a material impact on the Partnership's
consolidated results of operations taken as a whole.
Note B - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
Partnership activities. The Limited Partnership Agreement provides for (i)
certain payments to affiliates for services, (ii) reimbursements of certain
expenses incurred by affiliates on behalf of the Partnership, (iii) an annual
asset management fee of $100,000 and (iv) an annual administration fee of
$10,000.
Affiliates of the Managing General Partner are entitled to receive 3% of
residential rent collections and 5% of commercial income from the Partnership's
property as compensation for providing property management services. The
Partnership paid to such affiliates approximately $709,000 and $693,000 for the
nine months ended September 30, 2003 and 2002, respectively, which is included
in operating expenses.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $329,000 and
$401,000 for the nine months ended September 30, 2003 and 2002, respectively,
which is included in general and administrative expenses. During 2001, the
Partnership was charged by affiliates of the Managing General Partner
approximately $2,245,000 for fees related to construction management services
for work performed during 1999, 2000 and 2001. These fees had been capitalized
and included in investment property. During the second quarter of 2002, it was
determined by the Managing General Partner that these fees should not have been
charged and the Partnership was refunded the full amount. Accordingly, such
previously capitalized fees were no longer included in investment property at
September 30, 2002.
In accordance with the Partnership Agreement, the Managing General Partner
earned approximately $78,000 in asset management fees and approximately $5,000
in administrative fees for both the nine month periods ended September 30, 2003
and 2002. These fees are included in general and administrative expenses.
At December 31, 2002, the Partnership owed advances of approximately $156,000 to
an affiliate of the Managing General Partner. The advance was repaid in January
2003 with interest charged at prime plus 2% which amounted to less than $1,000
for the nine months ended September 30, 2003. There were no advances owed at
September 30, 2002.
The Partnership insures its property up to certain limits through coverage
provided by AIMCO which is generally self-insured for a portion of losses and
liabilities related to workers compensation, property casualty and vehicle
liability. The Partnership insures its property above the AIMCO limits through
insurance policies obtained by AIMCO from insurers unaffiliated with the
Managing General Partner. During the nine months ended September 30, 2003 and
2002, the Partnership was charged by AIMCO and its affiliates approximately
$273,000 and $331,000, respectively, for insurance coverage and fees associated
with policy claims administration.
Note C - Mortgage Note Payable
On November 14, 2002, the Partnership refinanced its existing mortgage
encumbering Springhill Lake Apartments. The refinancing replaced the existing
mortgage of approximately $50,300,000 with a new mortgage in the amount of
$113,100,000. The Partnership capitalized loan costs of approximately $2,058,000
during 2002 and capitalized an additional $53,000 during the nine months ended
September 30, 2003. In addition, approximately $7,026,000 was deposited in an
escrow account in connection with the refinancing to be used to complete
required repairs at the property.
Initially the November 14, 2002 refinancing of Springhill Lake Apartments was
under an interim credit facility ("Interim Credit Facility") which also provided
for the refinancing of several other properties. The Interim Credit Facility
created separate loans for each property refinanced thereunder, which loans were
not cross-collateralized or cross-defaulted with each other. During the term of
the Interim Credit Facility, Springhill Lake Apartments was required to make
interest-only payments.
During December 2002, the loan on Springhill Lake Apartments was transferred to
a different lender. The credit facility ("Permanent Credit Facility") with the
new lender has a maturity of five years with an option for the Partnership to
elect one five-year extension. This Permanent Credit Facility also created
separate loans for each property refinanced thereunder, which loans are not
cross-collateralized or cross-defaulted with each other. Each note under this
Permanent Credit Facility is initially a variable rate loan, and after three
years the Partnership has the option of converting the note to a fixed rate
loan. The interest rate on the variable rate loans is 85 basis points over the
Fannie Mae discounted mortgage-backed security index (1.91% at September 30,
2003), and the rate resets monthly. Each loan automatically renews at the end of
each month. In addition, monthly principal payments are required based on a
30-year amortization schedule, using the interest rate in effect during the
first month that the property is financed by the Permanent Credit Facility. The
loans may be prepaid without penalty.
The mortgage note payable is non-recourse and is secured by a pledge of the
Partnership's interest in the operating partnerships, and joint and several
guarantees by the operating partnerships which, in turn, are secured by an
indemnity first mortgage on the operating partnerships and a pledge of the stock
of Springfield Facilities, Inc., an affiliate. Further, the property may not be
sold subject to existing indebtedness.
Note D - Casualty Gain
During March 2002 a fire occurred at Springhill Lake Apartments which resulted
in damage to eleven units at the property. During the nine months ended
September 30, 2003, all work was completed to repair the damage and the property
recorded a casualty gain of approximately $83,000. The gain was the result of
the receipt of insurance proceeds of approximately $104,000 offset by
approximately $21,000 of undepreciated property improvements and replacements
being written off.
During April 2001 a fire occurred at Springhill Lake Apartments which resulted
in damage to two buildings at the property. The property initially received
$145,000 of insurance proceeds during August 2001 and received the remaining
balance of $445,000 in June 2002. All work has been completed with the total
costs to restore the buildings totaling approximately $595,000. A casualty gain
was recognized during the nine months ended September 30, 2002 of approximately
$466,000 as a result of the receipt of $590,000 in total insurance proceeds less
the write-off of approximately $124,000 in undepreciated assets.
Note E - Minority Interest
The limited partnership interest in the operating partnerships is reflected as a
minority interest in the accompanying consolidated financial statements. Income
allocated to the minority partner for the nine months ended September 30, 2003
and 2002 was approximately zero and $783,000, respectively. During the nine
months ended September 30, 2003, the operating partnerships distributed
approximately $7,730,000 of operating and refinancing proceeds to its partners,
of which approximately $985,000 was distributed to the minority interest
partner. Previous distributions to the minority interest partner during 2002 had
reduced the minority interest partner's investment balance to zero. When the
operating partnerships make distributions in excess of the minority partner's
investment balance, the Partnership, as the majority partner, records a charge
equal to the minority partner's excess distribution over the investment balance.
The charge is classified as distributions to the minority interest partner in
excess of investment on the accompanying consolidated statements of operations.
Distributions to the minority partner in excess of investment totaled
approximately $985,000 for the nine months ended September 30, 2003. Such
cumulative distributions to the minority partner in excess of investment totaled
approximately $2,082,000 at September 30, 2003. No income is allocated to the
minority partner until all previous losses recognized by the majority partner
are recovered. For the nine months ended September 30, 2003, approximately
$798,000 in earnings were allocated to the majority partner to recover previous
losses recognized. Earnings will continue to be allocated to the majority
partner to recover previous losses recognized until such time as the net amount
of approximately $1,284,000 at September 30, 2003 is recovered.
Note F - Legal Proceedings
On August 8, 2003 AIMCO Properties L.P., an affiliate of the Managing General
Partner, was served with a Complaint in the United States District Court,
District of Columbia alleging that AIMCO Properties L.P. willfully violated the
Fair Labor Standards Act (FLSA) by failing to pay maintenance workers overtime
for all hours worked in excess of forty per week. The Complaint is styled as a
Collective Action under the FLSA and seeks to certify state subclasses in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate maintenance workers for
time that they were required to be "on-call". Additionally, the Complaint
alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating
maintenance workers for time that they worked in responding to a call while
"on-call". The Complaint also attempts to certify a subclass for salaried
service directors who are challenging their classification as exempt from the
overtime provisions of the FLSA. AIMCO Properties L.P. has filed an answer to
the Complaint denying the substantive allegations. Although the outcome of any
litigation is uncertain, in the opinion of the Managing General Partner the
claims will not result in any material liability to the Partnership.
The Partnership is unaware of any other pending or outstanding litigation
matters involving it or its investment property that are not of a routine nature
arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The matters discussed in this report contain certain forward-looking statements,
including, without limitation, statements regarding future financial performance
and the effect of government regulations. Actual results may differ materially
from those described in the forward-looking statements and will be affected by a
variety of risks and factors including, without limitation: national and local
economic conditions; the terms of governmental regulations that affect the
Registrant and interpretations of those regulations; the competitive environment
in which the Registrant operates; financing risks, including the risk that cash
flows from operations may be insufficient to meet required payments of principal
and interest; real estate risks, including variations of real estate values and
the general economic climate in local markets and competition for tenants in
such markets; litigation, including costs associated with prosecuting and
defending claims and any adverse outcomes, and possible environmental
liabilities. Readers should carefully review the Registrant's financial
statements and the notes thereto, as well as the risk factors described in the
documents the Registrant files from time to time with the Securities and
Exchange Commission.
The Partnership owns no property other than its interest in the operating
partnerships. The operating partnerships' investment property is a complex which
consists of apartment and townhouse units and an eight store shopping center.
The following table sets forth the average occupancy of the property for the
nine months ended September 30, 2003 and 2002:
Average
Occupancy
2003 2002
Springhill Lake Apartments
Greenbelt, Maryland 96% 97%
Results of Operations
The Partnership's net income for the nine months ended September 30, 2003 was
approximately $3,044,000 compared to net income of approximately $3,104,000 for
the corresponding period in 2002. The Partnership's net income for the three
months ended September 30, 2003 was approximately $1,376,000 compared to net
income of approximately $1,247,000 for the three months ended September 30,
2002. Income before minority interest for the nine months ended September 30,
2003 was approximately $4,029,000 compared to approximately $3,887,000 for the
corresponding period in 2002. Income before minority interest for the three
months ended September 30, 2003 was approximately $1,376,000 compared to
approximately $1,541,000 for the corresponding period in 2002. The increase in
income before minority interest for the nine months ended September 30, 2003 is
primarily due to a decrease in total expenses partially offset by a decrease in
total revenues. The decrease in income before minority interest for the three
months ended September 30, 2003 is due to an increase in total expenses while
total revenues remained relatively constant between the periods. The decrease in
total revenues for the nine months ended September 30, 2003 is due to a larger
casualty gain recognized in 2002 compared to 2003 related to separate fires at
the property in April 2001 and March 2002, respectively, slightly offset by an
increase in both other and rental income. Other income increased due to
increases in utility reimbursements and laundry income at the property. Rental
income increased slightly due to increased rental rates at Springhill Lake
Apartments.
During March 2002 a fire occurred at Springhill Lake Apartments which resulted
in damage to eleven units at the property. During the nine months ended
September 30, 2003, all work was completed to repair the damage and the property
recorded a casualty gain of approximately $83,000. The gain was the result of
the receipt of insurance proceeds of approximately $104,000 offset by
approximately $21,000 of undepreciated property improvements and replacements
being written off.
During April 2001 a fire occurred at Springhill Lake Apartments which resulted
in damage to two buildings at the property. The property initially received
$145,000 of insurance proceeds during August 2001 and received the remaining
balance of $445,000 in June 2002. All work has been completed with the total
costs to restore the buildings totaling approximately $595,000. A casualty gain
was recognized during the nine months ended September 30, 2002 of approximately
$466,000 as a result of the receipt of $590,000 in total insurance proceeds less
the write-off of approximately $124,000 in undepreciated assets.
Total expenses for the nine months ended September 30, 2003 decreased due to
decreases in interest and general and administrative expenses partially offset
by increases in operating and depreciation expenses. Property tax expense
remained relatively constant between the comparable periods. Interest expense
decreased due to the refinancing of the mortgage encumbering Springhill Lake
Apartments in November 2002. Though the mortgage principal balance increased
significantly, the variable interest rate on the new loan was significantly
lower in 2003 than the fixed interest rate applicable to the old loan during
2002. General and administrative expense decreased due to a decrease in
accountable reimbursements paid to an affiliate of the Managing General Partner
in accordance with the Partnership Agreement. Operating expense increased due to
an increase in maintenance expenses, primarily interior painting, natural gas
costs, roof repairs and snow removal expenses, partially offset by a decrease in
salary and related employee expenses at the property. Depreciation expense
increased due to property improvements and replacements placed into service
during the past twelve months which are now being depreciated.
Total expenses for the three months ended September 30, 2003 increased due to
increases in operating and depreciation expenses partially offset by decreases
in interest and general and administrative expenses, all as discussed above, and
a decrease in property tax expense. Property tax expense decreased for the three
months ended September 30, 2003 due to an adjustment made in the third quarter
of 2003, which was made based on the property tax bill received during that time
being lower than had been estimated earlier in the year.
Included in general and administrative expenses are reimbursements to the
Managing General Partner as allowed under the Partnership Agreement associated
with its management of the Partnership. Costs associated with the quarterly and
annual communications with investors and regulatory agencies and the annual
audit required by the Partnership Agreement are also included in general and
administrative expenses.
Minority interest in net earnings of the operating partnerships totaled
approximately $294,000 and $783,000 for the three and nine months ended
September 30, 2002, respectively. During the three and nine months ended
September 30, 2003, the Partnership did not recognize any minority interest in
net earnings of the operating partnerships as previous distributions to the
minority partner during 2002 reduced the minority interest partner's investment
balance to zero. For the three and nine months ended September 30, 2003
distributions to the minority partner of approximately zero and $985,000,
respectively, were made in excess of the minority partner's investment in the
operating partnerships. When the operating partnerships make distributions in
excess of the minority partner's investment balance, the Partnership, as the
majority partner, records a charge equal to the minority partner's excess
distribution over the investment balance. The charge is classified as
distributions to the minority partner in excess of investment on the
accompanying consolidated statements of operations. Distributions to the
minority partner in excess of investment totaled approximately $985,000 for the
nine months ended September 30, 2003. Such cumulative distributions to the
minority partner in excess of investment totaled approximately $2,082,000 at
September 30, 2003. No income is allocated to the minority partner until all
previous losses recognized by the majority partner are recovered. For the nine
months ended September 30, 2003, approximately $798,000 in earnings were
allocated to the majority partner to recover previous losses recognized.
Earnings will continue to be allocated to the majority partner to recover
previous losses recognized until such time as the net amount of approximately
$1,284,000 at September 30, 2003 is recovered.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of its investment property to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels, and protecting the Partnership from increases in expenses. As part of
this plan, the Managing General Partner attempts to protect the Partnership from
the burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, the Managing General
Partner may use rental concessions and rental rate reductions to offset
softening market conditions, accordingly, there is no guarantee that the
Managing General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
At September 30, 2003, the Partnership had cash and cash equivalents of
approximately $3,337,000 as compared to approximately $192,000 at September 30,
2002. Cash and cash equivalents decreased approximately $2,222,000 from December
31, 2002 due to approximately $9,974,000 and $2,230,000 of cash used in
financing and investing activities, respectively, partially offset by
approximately $9,982,000 of cash provided by operating activities. Cash used in
financing activities consisted of distributions to partners, principal payments
made on the mortgage encumbering the property, payments on advances from an
affiliate of the Managing General Partner and additional loan costs paid
relating to the 2002 mortgage refinancing. Cash used in investing activities
consisted of property improvements and replacements and, to a lesser extent, net
deposits to escrow accounts maintained by the mortgage lender partially offset
by the receipt of insurance proceeds. The Partnership invests its working
capital reserves in interest bearing accounts.
The Partnership has invested as a general partner in the operating partnerships,
and as such, receives distributions of cash flow from the operating partnerships
and is responsible for expenditures consisting of (i) interest payable on the
mortgage loan and (ii) fees payable to affiliates of the Managing General
Partner. The Managing General Partner believes that funds distributed by the
operating partnerships to the Partnership will be sufficient to pay such
expenditures.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the property to adequately maintain the physical assets
and other operating needs of the Partnership and to comply with Federal, state,
and local legal and regulatory requirements. The Managing General Partner
monitors developments in the area of legal and regulatory compliance and is
studying new federal laws, including the Sarbanes-Oxley Act of 2002. The
Sarbanes-Oxley Act of 2002 mandates or suggests additional compliance measures
with regard to governance, disclosure, audit and other areas. In light of these
changes, the Partnership expects that it will incur higher expenses related to
compliance, including increased legal and audit fees. Capital improvements
planned for the Partnership's property are detailed below.
During the nine months ended September 30, 2003 the Partnership completed
approximately $2,181,000 of capital improvements at Springhill Lake Apartments
consisting primarily of structural improvements, appliance and plumbing fixture
upgrades, floor covering replacements, cabinet upgrades and interior
decorations. These improvements were funded from operations. The Partnership
evaluates the capital improvement needs of the property during the year and
currently expects to complete an additional $325,000 which does not include any
amounts that will be incurred to complete repairs and improvements at the
property required to be made in connection with the November 2002 refinancing of
the mortgage encumbering the property. In connection with the refinancing,
approximately $7,026,000 was deposited in an escrow account to fund such repairs
and improvements. The additional capital improvements will consist primarily of
roofing upgrades, appliance and flooring replacements and structural
improvements. Additional improvements may be considered and will depend on the
physical condition of the property as well as anticipated cash flow generated by
the property.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Partnership's distributable cash flow,
if any, may be adversely affected at least in the short term.
On November 14, 2002, the Partnership refinanced its existing mortgage
encumbering Springhill Lake Apartments. The refinancing replaced the existing
mortgage of approximately $50,300,000 with a new mortgage in the amount of
$113,100,000. The Partnership capitalized loan costs of approximately $2,058,000
during 2002 and capitalized an additional $53,000 during the nine months ended
September 30, 2003. In addition, approximately $7,026,000 was deposited in an
escrow account in connection with the refinancing to be used to complete
required repairs at the property.
Initially the November 14, 2002 refinancing of Springhill Lake Apartments was
under an interim credit facility ("Interim Credit Facility") which also provided
for the refinancing of several other properties. The Interim Credit Facility
created separate loans for each property refinanced thereunder, which loans were
not cross-collateralized or cross-defaulted with each other. During the term of
the Interim Credit Facility, Springhill Lake Apartments was required to make
interest-only payments.
During December 2002, the loan on Springhill Lake Apartments was transferred to
a different lender. The credit facility ("Permanent Credit Facility") with the
new lender has a maturity of five years with an option for the Partnership to
elect one five-year extension. This Permanent Credit Facility also created
separate loans for each property refinanced thereunder, which loans are not
cross-collateralized or cross-defaulted with each other. Each note under this
Permanent Credit Facility is initially a variable rate loan, and after three
years the Partnership has the option of converting the note to a fixed rate
loan. The interest rate on the variable rate loans is 85 basis points over the
Fannie Mae discounted mortgage-backed security index (1.91% at September 30,
2003), and the rate resets monthly. Each loan automatically renews at the end of
each month. In addition, monthly principal payments are required based on a
30-year amortization schedule, using the interest rate in effect during the
first month that the property is financed by the Permanent Credit Facility. The
loans may be prepaid without penalty.
The mortgage note payable is non-recourse and is secured by a pledge of the
Partnership's interest in the operating partnerships, and joint and several
guarantees by the operating partnerships which, in turn, are secured by an
indemnity first mortgage on the operating partnerships and a pledge of the stock
of Springfield Facilities, Inc., an affiliate. Further, the property may not be
sold subject to existing indebtedness.
The Partnership's assets are thought to be sufficient for any near term needs
(exclusive of capital improvements) of the Partnership. The mortgage
indebtedness of approximately $111,070,000 requires monthly payments of
principal and interest until its maturity date in September 2007 at which time a
balloon payment of approximately $99,693,000 will be due. The Managing General
Partner may attempt to refinance such indebtedness and/or sell the property
prior to such maturity date. If the property cannot be refinanced or sold for a
sufficient amount, the Partnership will risk losing the property through
foreclosure.
The Partnership distributed the following amounts during the nine months ended
September 30, 2003 and 2002 (in thousands, except per unit data):
Per Limited Per Limited
Nine Months Ended Partnership Nine Months Ended Partnership
September 30, 2003 Unit September 30, 2002 Unit
Refinancing $ 2,818 $ 4,342 $ -- $ --
Operations 3,932 5,755 4,241 6,208
$ 6,750 $10,097 $ 4,241 $ 6,208
Future cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves, and the timing of the debt
maturity, refinancing, and/or property sale. The Partnership's cash available
for distribution is reviewed on a monthly basis. There can be no assurance that
the Partnership will generate sufficient funds from operations after required
capital improvement expenditures to permit further distributions to its partners
during the remainder of 2003 or subsequent periods.
Other
AIMCO and its affiliates owned 521.90 limited partnership units (the "Units") in
the Partnership representing 80.42% of the outstanding Units at September 30,
2003. A number of these Units were acquired pursuant to tender offers made by
AIMCO or its affiliates or Three Winthrop's affiliates. It is possible that
AIMCO or its affiliates will acquire additional Units in exchange for cash or a
combination of cash and units in AIMCO Properties, L.P., the operating
partnership of AIMCO, either through private purchases or tender offers.
Pursuant to the Partnership Agreement, unitholders holding a majority of the
Units are entitled to take action with respect to a variety of matters that
include, but are not limited to, voting on certain amendments to the Partnership
Agreement and voting to remove the Managing General Partner. As a result of its
ownership of 80.42% of the outstanding Units, AIMCO and its affiliates are in a
position to control all voting decisions with respect to the Partnership.
Although the Managing General Partner owes fiduciary duties to the limited
partners of the Partnership, the Managing General Partner also owes fiduciary
duties to AIMCO as its sole stockholder. As a result, the duties of the Managing
General Partner, as managing general partner, to the Partnership and its limited
partners may come into conflict with the duties of the Managing General Partner
to AIMCO, as its sole stockholder.
Recent Accounting Pronouncements
In May 2003, the FASB issued SFAS 150, which establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. The requirements of SFAS 150
apply to the classification and measurement of freestanding financial
instruments. SFAS 150 is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. The Partnership has adopted
SFAS 150 as of July 1, 2003. Additionally, in September 2003, the FASB staff
indicated that SFAS 150 also applies to the non-controlling interests in
consolidated finite life partnerships. However, on October 29, 2003, the FASB
indefinitely deferred the provisions of SFAS 150 for finite life partnerships.
The adoption of SFAS 150 did not have a material impact on the Partnership's
consolidated results of operations taken as a whole.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States which require the Partnership
to make estimates and assumptions. The Partnership believes that of its
significant accounting policies, the following may involve a higher degree of
judgment and complexity.
Impairment of Long-Lived Assets
The Partnership's investment property is recorded at cost, less accumulated
depreciation, unless considered impaired. If events or circumstances indicate
that the carrying amount of the property may be impaired, the Partnership will
make an assessment of its recoverability by estimating the undiscounted future
cash flows, excluding interest charges, of the property. If the carrying amount
exceeds the aggregate future cash flows, the Partnership would recognize an
impairment loss to the extent the carrying amount exceeds the fair value of the
property.
Real property investments are subject to varying degrees of risk. Several
factors may adversely affect the economic performance and value of the
Partnership's investment property. These factors include, but are not limited
to, changes in the national, regional and local economic climate; local
conditions, such as an oversupply of multifamily properties; competition from
other available multifamily property owners and changes in market rental rates.
Any adverse changes in these factors could cause impairment of the Partnership's
assets.
Revenue Recognition
The Partnership generally leases apartment units for twelve-month terms or less.
Commercial building lease terms are generally for terms of 3 to 10 years or
month to month. Rental income attributable to leases is recognized monthly as it
is earned and the Partnership fully reserves balances outstanding over thirty
days. The Partnership will offer rental concessions during particularly slow
months or in response to heavy competition from other similar complexes in the
area. Any concessions given at the inception of the lease are amortized over the
life of the lease.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership is exposed to market risks from adverse changes in interest
rates. In this regard, changes in U.S. interest rates affect the interest earned
on the Partnership's cash and cash equivalents as well as interest paid on its
indebtedness. As a policy, the Partnership does not engage in speculative or
leveraged transactions, nor does it hold or issue financial instruments for
trading purposes. The Partnership is exposed to changes in interest rates
primarily as a result of its borrowing activities used to maintain liquidity and
fund business operations. The debt encumbering the Property bears interest at a
variable rate. Based on interest rates at September 30, 2003, a 100 basis point
increase or decrease in market interest rates would affect net income by
approximately $1.1 million.
The following table summarizes the Partnership's debt obligations at September
30, 2003. Management believes that the fair value of the Partnership's debt
approximates its carrying value as of September 30, 2003.
Principal amount by expected maturity:
Long Term Debt
Variable Rate Debt Average Interest Rate
(in thousands)
2003 $ 679 (1)
2004 2,769 (1)
2005 2,829 (1)
2006 2,891 (1)
2007 101,902 (1)
Total $111,070
(1) Adjustable rate based on Fannie Mae discounted mortgage-backed security
index ("DMBS") plus 85 basis points. The rate was 1.91% at September 30,
2003 and will reset monthly. The Partnership has the option of converting
to a fixed rate loan in 2005. The loan matures in 2007 with one five-year
extension option.
ITEM 4. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures. The Partnership's management, with the
participation of the principal executive officer and principal financial officer
of the Managing General Partner, who are the equivalent of the Partnership's
principal executive officer and principal financial officer, respectively, has
evaluated the effectiveness of the Partnership's disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end
of the period covered by this report. Based on such evaluation, the principal
executive officer and principal financial officer of the Managing General
Partner, who are the equivalent of the Partnership's principal executive officer
and principal financial officer, respectively, have concluded that, as of the
end of such period, the Partnership's disclosure controls and procedures are
effective.
(b) Internal Control Over Financial Reporting. There have not been any changes
in the Partnership's internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
fiscal quarter to which this report relates that have materially affected, or
are reasonably likely to materially affect, the Partnership's internal control
over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 8, 2003 AIMCO Properties L.P., an affiliate of the Managing General
Partner, was served with a Complaint in the United States District Court,
District of Columbia alleging that AIMCO Properties L.P. willfully violated the
Fair Labor Standards Act (FLSA) by failing to pay maintenance workers overtime
for all hours worked in excess of forty per week. The Complaint is styled as a
Collective Action under the FLSA and seeks to certify state subclasses in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate maintenance workers for
time that they were required to be "on-call". Additionally, the Complaint
alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating
maintenance workers for time that they worked in responding to a call while
"on-call". The Complaint also attempts to certify a subclass for salaried
service directors who are challenging their classification as exempt from the
overtime provisions of the FLSA. AIMCO Properties L.P. has filed an answer to
the Complaint denying the substantive allegations. Although the outcome of any
litigation is uncertain, in the opinion of the Managing General Partner the
claims will not result in any material liability to the Partnership.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
3.4 Amended and Restated Limited Partnership Agreement
and Certificate of Amendment of Springhill Lake
Investors Limited Partnership (incorporated herein
by reference to the Registrant's Registration
Statement on Form 10, dated April 30, 1986).
3.4(a) Amendment to Amended and Restated Limited
Partnership Agreement and Certificate of Amendment
of Springhill Lake Investors Limited Partnership
(incorporated herein by reference to the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993).
31.1 Certification of equivalent of Chief Executive
Officer pursuant to Securities Exchange Act Rules
13a-14(a)/15d-14(a), as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of equivalent of Chief Financial
Officer pursuant to Securities Exchange Act Rules
13a-14(a)/15d-14(a), as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
b) Reports on Form 8-K:
None filed during the quarter ended September 30, 2003.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
By: THREE WINTHROP PROPERTIES, INC.
Managing General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Vice President - Residential
By: /s/Paul J. McAuliffe
Paul J. McAuliffe
Vice President - Residential
and Chief Financial Officer
Date: November 13, 2003
Exhibit 31.1
CERTIFICATION
I, Patrick J. Foye, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Springhill Lake
Investors Ltd. Partnership;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: November 13, 2003
/s/Patrick J. Foye
Patrick J. Foye
Vice President - Residential and Chief
Financial Officer of Three Winthrop Properties,
Inc., equivalent of the chief executive officer
of the Partnership
Exhibit 31.2
CERTIFICATION
I, Paul J. McAuliffe, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Springhill Lake
Investors Ltd. Partnership;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: November 13, 2003
/s/Paul J. McAuliffe
Paul J. McAuliffe
Vice President - Residential and Chief
Financial Officer of Three Winthrop Properties,
Inc., equivalent of the chief financial officer
of the Partnership
Exhibit 32.1
Certification of CEO and CFO
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of Springhill Lake
Investors Ltd. Partnership (the "Partnership"), for the quarterly period ended
September 30, 2003 as filed with the Securities and Exchange Commission on the
date hereof (the "Report"), Patrick J. Foye, as the equivalent of the chief
executive officer of the Partnership, and Paul J. McAuliffe, as the equivalent
of the chief financial officer of the Partnership, each hereby certifies,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Partnership.
/s/Patrick J. Foye
Name: Patrick J. Foye
Date: November 13, 2003
/s/Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: November 13, 2003
This certification is furnished with this Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Partnership for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended.